How to make a larger down payment for lower mortgage payments
July 16, 2014
Before purchasing a new home, you will need to have a substantial down payment. The size of a down payment on a home is the most important factor in determining your monthly payment.
Before purchasing a new home, you will need to have a substantial down payment. The size of a down payment on a home is the most important factor in determining your monthly payment. Most lenders require certain levels of down payments (often 5% to 25%) to consider you for a mortgage. The larger the down payment, the more comfortable they will probably be giving you the mortgage. But it may be nice to have some extra money available after you move into your new home. New carpeting, new furniture and landscaping all take money.
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Here are some tips we suggest to help you save for your down payment:
Develop a budget and timeline
Start by determining how much you’ll need for a down payment. Create a budget and calculate how much you can realistically save each month – that will help you gauge when you’ll be ready to transition from renter to homeowner.
Establish a separate savings account
Set up a separate savings account exclusively for your down payment and make your monthly contributions automatic. By keeping this money separate, you’ll be less likely to tap into it when you’re tight on cash.
Shop around to reduce major monthly expenses
It’s a good idea to check rates for your car insurance, renter’s insurance, health insurance, cable, Internet or cell phone plan. There may be deals or promotions available that allow you to save hundreds of dollars by adjusting your contracts.
Monitor your spending
With Online Banking, keeping an eye on your spending is easier than ever. Track where most of your discretionary income is going. Identify areas where you could cut back (e.g. nice meals out, vacations, etc.) and instead put that money into savings.
Look into state and local home-buying programs
Many states, counties and local governments operate programs for first-time homebuyers. Some programs offer housing discounts, while others provide down payment loans or grants.
Celebrate savings milestones
Saving enough for a down payment can be daunting. To avoid getting discouraged, break it up into smaller goals and reward yourself when you reach each one. If you need to save $30,000 total, consider treating yourself to a nice meal every $5,000 saved. This will help you stay motivated throughout the process.
Buying a home, especially a first home, is a big financial and emotional step. Do your financial homework. Investigate your mortgage options. Determine what level of monthly mortgage payments will be affordable and comfortable. Use some discipline to save your down payment.
Our mortgage banking experts are here to help you throughout the whole process, so feel free to contact us while you’re still saving or when you’re ready to make the big purchase.
Courtesy of aba.com